Fed Proposes GENIUS Act Reserve, Capital, Application Rules for Stablecoin Issuers
Commentary by Gage Raju-Salicki
The Federal Reserve Board proposed reserve, capital, and risk-management rules for the stablecoin issuers it supervises, along with an application process for state member banks to issue stablecoins through subsidiaries.
Under the issuer proposal, supervised issuers would be required to back every outstanding stablecoin one-to-one with segregated, high-quality liquid assets such as short-term Treasury bills and Fed deposits. The proposal would also (i) set standardized capital requirements tied to credit and operational risk, (ii) impose risk-management standards covering insider transactions, third-party relationships, and customer information, (iii) bar issuers from paying interest to holders, and (iv) prohibit issuers from using government-related names or implying deposit insurance or a government guarantee. The proposal would further set rules for firms custodying stablecoin reserves. Significantly, the proposal would implement the GENIUS Act's ban on tying stablecoin services to other products, applying the ban to all payment stablecoin issuers regardless of regulator.
A separate application proposal would let an insured state member bank apply for Board approval to issue stablecoins through a subsidiary, submitting a business plan, financial projections, capital documentation, and executive background reports. The Board would generally have 120 days to act on a complete application, and a bank whose application was denied could request a hearing and appeal, with the Board required to issue a written final determination.
Comments on both proposals are due 60 days after Federal Register publication. Board Governor Michael S. Barr said he supports the framework but wants any final rulemaking to address a "significant or systemic" threshold that could limit enforcement against AML deficiencies, a concern he also raised about the Board's separate bank AML proposal.
Commentary
The GENIUS Act rules are coming together quickly, and there is now likely enough on the table for issuers to begin planning ahead of the January 2027 effective date. Here, the Federal Reserve Board has proposed reserve, capital, and risk-management requirements for the stablecoin issuers it supervises, plus an application process for state member banks that want to issue through a subsidiary. This is the first real indication of how demanding federal supervision will be. Accordingly, issuers should be reading the reserve and capital terms closely now because those are the provisions most likely to dictate whether a given business model still works once the rules are final.
That said, the details of GENIUS are still clearly being argued over. Governor Michael S. Barr has warned that the proposal's anti-money-laundering threshold, which bars supervisory or enforcement action unless a deficiency is "significant or systemic," could tie the Board's hands. Separately, four banking associations have asked the OCC to take a harder look at nonbank applicants and to open individual applications to public comment, rather than judging nonbanks under the same statutory factors as bank subsidiaries with no outside input. As made clear by the conversation occurring presently, this debate will not be settled by the statute alone - it will be settled in comment letters, in how expansive or narrow the final rules are, and in the conditions the agencies attach to early approvals. These two points of debate are, then, a prelude to what comes next in the question of regulatory implementation.
However, the fact that increasingly narrow issues are being debated ahead of the January 2027 effective date bodes well for the Act’s implementation: it will leave regulators space to iron out specifics based on public comment. In short, then, regulators appear close to final GENIUS implementation, not simply because of the January 2027 deadline, but also because of the narrowing field of contentious issues. Comptroller Jonathan V. Gould said in August that the OCC will have a final rule by November, so it seems that the Fed is not alone in closing in on final rules here. As such, comment letters will be crucial for regulators to consider how final GENIUS implementation takes shape.